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The Implications Of Schindler and VN
- Thread starter Pa(b)st Prime
- Start date
Quote from Cutten:
So IMO in the long-run, all fully mechanical systems will degrade. However, good systems traders will know this and will be constantly researching for new edges, and refining their old systems, throwing them out if they become obsolete. So whilst a single system is unlikely to provide superior returns over the very long run, systematic trading is still viable as an approach."
Just checked recently, but the TA trading systems I researched for my graduation thesis 10 years ago still produce the same results.
Regarding your basic economic theory... you have to realise economic theory is just that.. theory, which doesn't quite work in the real world.
As to supporting evidence. Quite a few succesfull CTA's out there that have pretty decent returns over a long period. And despite all the hocus pocus what they're doing isn't all that sophisticated. Sure, they change their systems but one never can be sure if performance improved or whether it was actually detrimental.
Quote from makloda:
2. Yes, there are automated strategies traded successfully with billions of dollars. Of course, they are being refined all the time.
MAN AHL Diversified:
Annualised volatility 18.0%
Worst drawdown -17.9%
Compound annual rate of return 19.5%
Total return (Since inception) 724.5%
AUM $3 bln USD [/B]
What if real investors with real money take out much of that real money during the 17.9% drawdown?
Quote from Cutten:
This seems to demonstrate that systematic trading, as an approach, can work very well. But at the same time it is the strongest possible indication that any given automated trading system will inevitably degrade over time, until it no longer makes returns sufficient to justify the risk involved. In other words, a system will not work in the long-run, but a systematic approach (if kept competitive by research and review) can.
My guess is all major profitable traders with systematic approaches must have their individual edges.
However, the whole game in financial markets, imo, is the question of How Fast one can Detect the degrading of the existing edge and How Well one can Polish it to identify/ meet any structural/ momentary changes in the long-run.
Quote from BJL:
Just checked recently, but the TA trading systems I researched for my graduation thesis 10 years ago still produce the same results.
Regarding your basic economic theory... you have to realise economic theory is just that.. theory, which doesn't quite work in the real world.
As to supporting evidence. Quite a few succesfull CTA's out there that have pretty decent returns over a long period. And despite all the hocus pocus what they're doing isn't all that sophisticated. Sure, they change their systems but one never can be sure if performance improved or whether it was actually detrimental.
I read Cutten's post and yours. You have a long way to go to reach his understanding...
Quote from piezoe:
Is there any reason to think that one can violate the risk-reward correlation using a mechanical system?
I believe that it can be violated by degrees. Which leads us to the definition of an 'edge'.
A while back, I had been thinking of doing a journal in which an index would be traded on a daily basis, 100% long or 100% short, and plot the results versus the index. Unfortunately, life got very busy.
Quote from makloda:
What do you think is gonna happen then, considering 65% of their allocation is in highly liquid bond, currency and interest rate futures?
I dont know about systems. My question is when a system shows a profit history or expectancy chart or whatever its called like the one above - would that chart be different if the investors did not choose to ride out the drawdown? To put it another way, was the system just lucky that it wasn't decimated by an emotional factor - the tolerance of its investors for losses/drawdowns?